Option-Adjusted Spread (OAS)
Option-Adjusted Spread (OAS) is the yield spread, after accounting for embedded options, between a fixed-income security and a risk-free benchmark. It represents the additional yield associated with the security’s optional features after removing the impact of exercised or timed options on expected cash flows.
Example: An analyst notes that a mortgage-backed security has an OAS of 120 basis points, indicating the price is evaluated with respect to the risk-free curve after adjusting for expected option effects.
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